New requirements aimed at helping consumers make savings on their mortgage repayments.

Standardised mortgage switching information for consumers to be introduced

Following a review, a number of lenders have been instructed to withdraw or amend advertisements relating to mortgage incentives

Following a public consultation process, the Central Bank is introducing changes to the Consumer Protection Code 2012 to help consumers make savings on their mortgage repayments, provide additional protections to consumers who are eligible to switch, and facilitate mortgage switching through enhancing the transparency of the mortgage framework. These changes build on the strong framework of protections already in place for mortgage borrowers, including the transparency measures introduced for variable rate mortgage holders in 2016. The new and enhanced requirements will take effect from 1 January 2019.

The changes follow research by the Central Bank from 2015 which found that, based on the analysis of over half a million mortgages, up to 21% of borrowers could save money by switching. Of those mortgages that could save money by switching, approximately 16,000 could save over €1,000 in the first 12 months, and around 27,000 switchers have the potential to save in excess of €10,000 over the lifetime of the mortgage. Consumer research conducted by the Central Bank in 2017 showed the need for greater transparency in information for consumers which would clearly inform them about the potential savings they could make by switching and the switching process itself.

New and enhanced consumer protection requirements

Six sets of changes are being made to the Consumer Protection Code 2012 as follows:

For consumers with fixed rate mortgages, lenders are required to inform their consumers at least 60 days in advance that they are about to come off their fixed rate and provide details of the new rate applicable from the expiry date. The lender should provide information on other possible options that may be available to the consumer.

For consumers on variable rate mortgages (other than on a tracker rate), lenders will be required to notify consumers every year as to whether they can, or cannot, move to a cheaper interest rate as a result of a move in their Loan to Value interest rate band, subject to the provision of an up-to-date valuation and any other requirements that may apply.

In relation to potential switching savings, the changes would require all lenders to provide, on request, an indicative comparison of the total interest payable on the consumer’s existing mortgage and the interest payable on the new mortgage or alternative interest rate on offer by that lender. Where the lender provides this information, they would also be required to provide a link to the relevant section of the CCPC’s website to allow consumers to compare potential mortgage switching savings available from other lenders.

The changes will impose a time-bound mortgage application process on lenders, including requirements to acknowledge receipt of a completed mortgage application within three business days and make a decision within 10 business days following receipt of all required information for assessment of a mortgage application.

In relation to incentives, the existing provision in the Code will be extended to apply the same protections to all mortgage holders i.e. for new, existing and switching mortgage holders. This is to ensure that consumers have sufficient clarity about the precise nature and scale of the benefit of an incentive to them, including the potential impact of an associated incentive on the cost of their mortgage.

The standardised pack of switching information from the lender is to at least include the lender’s mortgage switching guide, including prescribed information; application forms; and information on timelines, mortgage process and documents required from the consumer.

In relation to the advertising of incentives, the Code already contains an extensive suite of advertising rules with which regulated firms must comply. The Central Bank recently undertook a review of advertisements by mortgage lenders, specifically in the context of incentives. On foot of this review, and following instruction from the Central Bank, 75% of advertisements reviewed were required to be withdrawn or amended.

Gráinne McEvoy, Director of Consumer Protection, said: ‘The consumer protection rules we are announcing today are focused on assisting consumers with lowering their mortgage repayments, where possible. Our research has shown that one in five mortgage holders could save money by switching their mortgage, and that significant numbers can make substantial savings.

‘While information to help consumers compare mortgage rates is widely available, including the CCPC’s online mortgage comparison tool, our research also shows that some of the reasons people don’t switch their mortgage is because they don’t realise how much money they could save and also find it difficult to compare mortgages. These changes are aimed at making it easier for consumers to obtain this key information so that they are able to easily identify whether they are able to make savings by switching their mortgage, and make the process quicker and easier to complete if they do decide to switch.’

Further information on the enhanced transparency measures for variable rate mortgage holders introduced by the Central Bank in 2016 is available here.

The Central Bank’s Macro-Financial Review (MFR) published in June 2018, provides some detail on switching activity in the Irish mortgage market (see Box 4 MFR 2018 I, June 2018). In 2017, 3,000 primary dwelling home (PDH) mortgage holders switched their mortgage. The analysis in the MFR Box notes that “those switching mortgage provider do so relatively early in the loan life cycle, have relatively low leverage (LTV and LTI), and are primarily located in the Dublin region”. In 2017, those who switched mortgage provider had, on average, a mortgage size outstanding of €221,488, a property value of €413,884 and combined gross income of €101,116. The loan term outstanding was 22 years on average while the interest rate was 3.2 per cent. Further, among those who switched, the average borrower age was 41 years and a large proportion of the switching population were in Dublin and the broader Leinster region.

The Central Bank is amending the Consumer Protection Code 2012 to add these enhanced transparency requirements by publishing an Addendum to the Code. The requirements set out in the Addendum will apply to regulated entities from 1 January 2019.

The Central Bank has also published an infographic and explainer to raise consumer awareness and understanding of the new and enhanced mortgage switching rules.

The Credit Reporting Act 2013 requires all lenders to submit personal and credit information to the Central Credit Register on loans, (including overdrafts, mortgages and credit cards) for €500 or more.